USPS OIG Audit Report – Flats Sequencing System: Program Status and Projected Cash Flow
This report discusses the Flats Sequencing System (FSS) program status and its projected financial impact and addresses both operational and financial risks (Project Number 09YG052DA000). The objective of this audit was to assess procedures for reporting of FSS performance and program savings shortfalls. See Appendix A for additional information about this audit.
In December 2006, the U.S. Postal Service approved a (redacted) project to develop,purchase, and deploy 100 FSS machines, which are designed to sort flat mail in the precise order in which it is delivered. The first two contract requirements tests of FSS machines (designed to ensure functionality, quality, and compliance with specifications) have shown shortfalls in expected performance. Typically, when there is a First Article Test (FAT) failure, Postal Service acquisition guidelines call for retests before beginning deployment. However, in this case, the Postal Service has decided to deploy FSS machines despite major performance shortfalls in order to capture savings earlier; however, deploying FSS machines that do not meet contract requirements could reduce
expected savings. Although the Postal Service has adjusted its savings expectations and project assumptions have changed, it has remained optimistic when communicating expected financial outlooks.
Conclusion
The Postal Service’s revised performance projections in Quarter 1 (Q1) of fiscal year (FY) 2010’s Investment Highlights report do not use current actual machine performance and its projection of a gain of at least $872 million from FSS appear optimistic. In addition,there have been significant changes in assumptions for FSS machines and measurement criteria since the 2006 approval of the original investment. For example, flats volumes have decreased significantly, expected throughput rates have not been met, planned FSS sites have increased, the program schedule has changed by a year, and additional savings for transitional employees (TE) have been introduced to the investment return.These changes make it challenging for the Postal Service to measure project success as initially defined.
Particularly, we believe adding TE savings to the evaluation of FSS program success is questionable for several reasons. First, these savings were never considered as part of the original investment decision. Second, 44 percent of TEs are not in districts that will eventually host FSS machines. Lastly, management claimed these savings prior to FSS deployment and has the option of reducing TE complements for volume declines irrespective of the FSS program’s success. Thus, much of the savings from these employees will likely not be associated with FSS deployment.The Postal Service’s Q1, FY 2010 Investment Highlights report shows a projected gain for the FSS program of at least $872 million and a return of at least 27 percent. Using current actual performance data for the highest performing machine and operational target metrics, we calculated four financial scenarios for measuring program status and progress
against program goals. These scenarios were at least $431 million lower than the scenarios the Postal Service presented. Such a large difference exists because the Postal Service used more optimistic performance assumptions rather than actual machine performance or operational target results.
Our analysis shows that using current FSS performance data to calculate projected savings results in a net present value (NPV) of $215 million (a rate of return of 14.49 percent). If we remove the questionable TE savings, the NPV decreases to a negative $311 million (a rate of return of 5.18 percent). Assuming the FSS machines reach the operational target metrics, we calculate gains from FSS to be $441 million (rate of return of 19.26 percent). If we remove the questionable TE savings, there is a projected NPV of a negative $85 million (a rate of return of 8.54 percent).
The Postal Service’s Handbook F-661 requires accurate analysis and reporting of program impact. One purpose of the Investment Highlights report is to show the progress of large-scale programs within the Postal Service. Reporting program performance based on actual and operational target data is critical so that key decision-makers (such as the Board of Governors) have sufficient information to monitor program progress on projects of significant duration. See Appendix B for our detailed analysis of this topic.
We recommend the vice president, Engineering:
1. Use actual machine performance and operational target data to more accurately report the progress of the Flats Sequencing System program’s financial outcomes in compliance reports such as the Investment Highlights report.
1 General Investment Policies and Procedures (November 2005, updated with Postal Bulletin revisions through October 11, 2007) provides a single source overview of investment projects.
Management’s Comments
While management agreed with the recommendation to use actual machine performance data for compliance reports, they took exception to certain findings and our recommendation to use operational target data. Specifically, the Postal Service will include an additional FSS financial scenario when reporting outcomes in Investment Highlights reports. Management will take this action in time for the Q3, FY 2010 Investment Highlights report. The reported scenario will represent the Postal Service’s most current assessment of actual machine performance. In reference to using operational target data,the Postal Service does not believe they are representative of long-term expectations and elected not to present them in future Investment Highlights reports.
Management also said the financial outcomes presented in the report do not recognize:
- Throughput improvements demonstrated during tests in November 2009 and April 2010.
- Performance improvements over the 10-year program life and performance levels already achieved by the first article machine.
- Over 17 hours of daily runtime for unconstrained machines.
- The relevance of TEs, their strategic use, and the resulting savings attributable to the FSS program.
- Scheduling adjustments that address lower mail volumes.
- Additional savings related to delivery unit space reductions and vehicle capital investment and maintenance avoidance.
Thus their lower bound outcomes represent the likely worst case scenario. We have included management’s comments, in their entirety, in Appendix D.
full report from the USPS Office Of Inspector General
OIG Audit: USPS Summer Sale For Mailers May Have Lost Money In FY 2009
This report presents the results of our audit of the fiscal year (FY) 2009 Standard Mail® Volume Incentive Program (Project Number 10BO008FF000). The report responds to a request from the Postal Regulatory Commission (PRC). Our objectives were to evaluate the Standard Mail Volume Incentive Program (Summer Sale) to determine whether the Postal Service achieved its objective of increasing volume and revenue and whether the process used to establish customers’ mailing history was valid and accurate. This audit addresses financial risk. See Appendix A for additional information about this audit.
The U.S. Postal Service intended its Summer Sale to increase volume during a typically light mail volume period and increase revenue. The program ran from July 1 through September 30, 2009. At the end of this period, the Summer Sale provided a 30 percent credit to customers for additional volume mailed over a specified threshold.
Conclusion
The Postal Service reported both volume and revenue increases resulting from the FY 2009 Summer Sale.1 However, the processes used to calculate the reported
increases may result in misleading reported revenue and volume impacts. While the Postal Service used actual, verifiable mailing data in many cases, the additional data
essential to calculations supporting the reported increases is less precise. These data included various assumptions related to mail thresholds,2 negotiated mail volumes
based on customer input, and incomplete or unconsidered employee cost data. Postal Service outsiders — including the PRC’s public representatives3 — have also
questioned the Postal Service’s methods for calculating reported revenue and volume increases. The public representatives found that using methods more closely aligned
with those initially considered by the PRC in approving the Summer Sale suggests the Postal Service may actually have lost money on the FY 2009 program.
A Postal Service official stated that the benefits gained from conducting incentive programs like the Summer Sale outweigh their potential financial uncertainties. The
official said the Summer Sale program should be viewed as an investment in the future of the Postal Service, creating long-term customer satisfaction and building its
reputation. While these goals are commendable, a stated objective of the FY 2009 Summer Sale was to increase revenue and volume. It is uncertain whether the Postal
Service achieved that objective. We believe the Postal Service needs solid data and complete cost information in order to make well-informed decisions on the programs it initiates or conducts, particularly considering the critical financial predicament it is currently facing.
Revenue and Volume Increases Reported for Summer Sale May be Misleading
Overall, the Postal Service did not always have independent, reliable, and complete data upon which to calculate the $24.1 million in net revenue contribution and increased volume resulting from the FY 2009 Summer Sale. This occurred because the Postal Service relied on certain customer-provided data to determine customer thresholds and this data was a key component in evaluating revenue and volume increases. In addition, the method the Postal Service used to determine customer mail volume without a Summer Sale — commonly referred to as “loyalty growth” — differs from the PRCapproved method. The Postal Service’s calculation of “loyalty growth” considered trends in volume, whereas the PRC’s public representatives applied a measure of price sensitivity to volumes actually mailed during the Summer Sale to calculate “loyalty growth.” As a result, the Postal Service provided $67.8 million in rebates to customers who exceeded the established threshold volumes that may have been inaccurate. We consider the $67.8 million to be assets at risk.
A key component in calculating net revenue and volume increases was determining customers’ mail volume thresholds. To determine thresholds, the Postal Service provided mailing data that established a threshold for all its customers who were eligible to participate in the Summer Sale. While 324 customers agreed with this threshold figure, 129 others did not. Customers who disagreed with the threshold met with a Postal Service analyst from the Business Customer Intelligence (BCI) Department to discuss and negotiate the changes. Postal Service officials stated that BCI analysts researched the requested changes; however, they were not able to provide documentation to support the changes made or the validation process.
Furthermore, Postal Service outsiders have questioned the validity of the calculation of the “loyalty growth.” The PRC’s public representatives8 found that using the PRC’s method for “loyalty growth,” the Summer Sale lost $39.6 million of revenue. This is in contrast to the Postal Service’s reported $24.1 million net revenue growth. These varying calculations illustrate the difficulty in determining the results and effect of the Summer Sale.
see full report from the Office Of Inspector General:
note: another postal website really likes stealing my headlines.
Letter to Rep. Gallegly: USPS OIG Can’t Get Bernstock Prosecuted?
Letter sent to President Barack Obama, Senators Diane Feinstein, Barbara Boxer and Congressman Elton Gallegly by Guy Nohrenberg, Simi Valley,CA
How is it that the US Postal Service Office of Inspector General (USPS OIG) cannot get Robert F. Bernstock prosecuted? The OIG has gathered enough evidence on this Postal Official to send it to the District Attorney and yet the case was turned down? Why?
What in the world is going on here? I know of front line supervisors fired for doing route inspection paperwork with their postmaster, carriers who were fired for letting their child sit in daddy’s jeep, and clerks who have been investigated for having Government pens at their homes. Yet this guy, Robert F. Bernstock isn’t even prosecuted? If I were an OIG Agent, I’d be pissed and embarrassed. The OIG cannot get Robert F. Bernstock to court? There are some big dogs stealing and wasting millions for their own personal gain. The boys and girls in the OIG set out instead to chase a few craft employees for pennies.
Read full text of letter via Congress.org
Indiana Postal Clerk Gets Probation For Misappropriation Of Funds
The following is a press release from the office of United States Attorney Timothy M. Morrison, Southern District of Indiana
INDIANAPOLIS – Casey D. Armstrong, 35, Lawrenceville, Ill., was sentenced to three years of probation today by U.S. District Judge William T. Lawrence following her guilty plea to misappropriation of Postal funds. This case was the result of a investigation by the United States Postal Service – Office of the Inspector General.
From January 2008 through December 2008, the Vincennes (Indiana) United States Post Office experienced over $2000 in retail losses. Beginning in November 2008, the United States Postal Service – Office of the Inspector General conducted an investigation to determine the source of the losses at the Vincennes Post Office. Video surveillance was set up of the postal clerks selling postage stamps. Casey D. Armstrong, the Defendant who was employed as a clerk, was observed mishandling customer transactions on 28 occasions, in which she underreported stamp sales into the cash register and then kept the resulting overage. Armstrong was interviewed and admitted to not ringing up all the stamp sales. She admitted keeping $2,000 or more of those proceeds for her own use. From the time Armstrong began working at the Vincennes post office in the fall of 2007, through the day she left, December 16, 2008, total losses were $3,796.
According to Assistant U.S. Attorney A. Brant Cook, who prosecuted the case for the government, Judge Lawrence ordered that Armstrong is to make restitution in the amount of $3,796 to the United States Postal Service. In addition to the standard conditions of probation,Armstrong is required to perform 60 hours of community service.
USPS OIG: Former Postal Marketing Exec Robert Bernstock misused staff, contractors
From the Federal Times
The U.S. Postal Service’s former top marketing executive repeatedly used government staff — and at least two business associates he hired with sole-source contracts — to manage his personal finances and outside business interests, according to a new report. Robert Bernstock, who resigned June 4, admitted to Office of Inspector General investigators that he had used postal resources and staff to handle his personal business while on the agency’s time. The report, released today, said his use of Postal Service employees and property to conduct personal business was improper. The report also raises questions about Postal Service general counsel Mary Anne Gibbons’ apparent failure to report Bernstock’s improper use of postal staff. download the entire report by clicking here.
USPS President Under Fire For Directing Postal Contracts To Former Associates Resigns
USPS OIG Asks: Should Stamp Vending Machines Be Brought Back?
For decades, the Postal Service offered vending machine service to supplement its retail operations. Vending machines meet the needs of customers who want to purchase a single stamp without waiting in line.
While the lack of stamp vending machines has resulted in widespread customer frustration and a surprising number of newspaper articles, the problems are particularly acute in economically depressed areas. In these areas, customers may go to the post office to purchase only one or a few stamps. As staffing is partially based on revenue and a single stamp is a very low revenue transaction, lines in these areas may be particularly long. Although Automated Postal Centers (APCs) provide many services including the sale of stamps, APCs require credit cards, which people in economically depressed areas often do not have. In addition, some customers find APCs to be intimidating to use. Finally, APCs sell only booklets of stamps or individual stamps in denominations of $1 or more, yet many disadvantaged customers want to buy just one First-Class Mail stamp.
click here to visit USPS OIG blog to vote
USPS OIG: Fixing CSRS Overpayment and pre-funding requirements would fully fund pension and retiree health benefits
The economic downturn and the continued electronic diversion of mail, coupled with an aggressive retiree health pre-payment schedule have combined to put the Postal Service in financial crisis. A recent analysis of the future of the mail conducted on behalf of the Postal Service showed that mail volume may not recover along with the economy – further deteriorating the Postal Service’s financial condition in the years to come. Moreover, in its April 12 report entitled, “U.S. Postal Service: Strategies and Options to Facilitate Progress Toward Financial Viability,” the Government Accountability Office (GAO) found This report presents the results of our review of the Civil Service Retirement System (CSRS) Overpayment by the U.S. Postal Service (Project Number 10YO036CI000).This report discusses the $75 billion CSRS overpayment by the Postal Service in fiscal years (FY) 1972 through 2009. The objective of this review was to assess the facts concerning this overpayment and identify any possible solution(s) to correct the overpayment to the benefit of the Postal Service. This review addresses financial risk.See Appendix A for additional information about this review.
On May 5, 2010, the U.S. Postal Service Office of Inspector General (OIG) entered, for the record, the attached Congressional testimony with the U.S. Congress in addition to the oral testimony previously given by the Postal Service’s Inspector General (IG) before Congress on April 15 and 22, 2010. 1 The attached testimony (See Appendix B) explains, in detail, the Postal Service’s $75 billion overpayment to the CSRS and three possible solutions to correct the overpayment contained in the IG’s written testimony of May 5, 2010. (See Appendix B pages 13 – 16)
Conclusion
The Postal Service pension fund is not made up of tax dollars. The two funding streams are the employees’ own money and money collected from postage sales, with inflated prices as a result of the $75 billion overpayment. See Appendix C for OIG’s detailed monetary impact calculation. The return of the overpayment or a combination of actions to realize the benefit of the $75 billion overpayment to the Postal Service would fully fund the pension and health retiree plans. The Postal Service’s more than $7 billion annual payments for retiree health care prefunding and retiree health care premiums would no 1 The April 15, 2010, Hearing before the Committee on Oversight and Government reform and the Subcommittee on the Federal Workforce, Postal Service, and the District of Columbia House of Representatives and the April 22, 2010, Hearing before the Senate Homeland Security and Governmental Affairs Committee’s Subcommittee on the Federal Financial Management, Government Information, Federal Services, and International Security.
How the $75 Billion overcharge started:
In July 1971, when the Post Office Department became the Postal Service, employees that belonged to the federal pension fund began contributing to the Postal Service’s portion of the pension fund. These retirement costs were divided according to the number of years employees had belonged to each fund. However, the federal pension fund paid for retirements was based on 1971 salaries, not final salaries as administered by the Office of Personnel Management (OPM).
OPM has explained that these mischarges were in response to what they believed to be the will of Congress expressed in 1974 legislation. However, the 1974 language was repealed by Congress in 2003. Congress directed OPM to use its authority to oversee the reforms using accepted “dynamic assumptions” that include pay increases and inflation. OPM switched to dynamic funding for the Postal Service portion, but did not for their share. The Postal Service paid the $75 billion difference.
In 2004, the Postal Service appealed the OPM’s methodology for pension fund allocation and the appeal was denied by the OPM. The denial relied on 1974 legislation that made the Postal Service responsible for the pension costs related to salary increases. However, the 1974 language was repealed by Congress.
In addition, the OPM directed the Postal Service to use 100 percent pre-funding for both pension and health care retirement funds. In contrast the OPM has pension funding levels of 41 percent for federal employees and 24 percent for the military. The OPM’s own retiree health care prefunding for federal employees is 0 percent. The Standard & Poor’s 500 companies’ pension funding is 80 percent.
Correcting either the $75 billion overcharge or reducing the 100 percent target prefunding level to 80 percent would result in the ability of the Postal Service to pay off the Treasury debt associated with paying the $75 billion overcharge.
Accordingly, the annual costs and premiums for the health care liability could be financed out of the interest earnings and surplus. Another option for the Postal Service could be to use the $75 billion overcharge to pledge to the retiree health fund instead of making annual payments. This could be done with the agreement of the OPM and the U.S. Treasury.
The details concerning each of the three possible solutions can be found in the appendix of the attached Congressional testimony.
See Full Report: Management Advisory Report – Civil Service Retirement System
Overpayment by the Postal Service (Report Number CI-MA-10-001).
Owners of Three Mailing Companies Indicted In Postage Meter Scam Resulting In More Than $14 Million Lost To USPS
(HOUSTON) – The owners of three third-party mailing and presort companies and several of their employees have been charged by indictment with conspiracy to commit mail fraud by possessing and using counterfeit postage meter machines to affix counterfeit postage in large mailings resulting in lost revenue of more than $14 million to the U.S. Postal Service (USPS) over a four-year period, United States Attorney José Angel Moreno and Chief Postal Inspector William R. Gilligan Jr. announced today. The seven-count indictment was returned under seal by a Houston grand jury on Thursday, June 17, 2010, and unsealed today.
Accused of conspiracy, two counts of mail fraud and four counts of postage meter fraud arising from a counterfeit metered postage scheme are Neal Lim, 49, the owner of Gulf Coast Presort Inc. (GCP) and Mail Processing Center Inc. (MPC), David Herrera, 44, the owner of Professional Mail Services Inc. (PMS), Robert Kamau Mungai, 41, the manager of GCP and MPC, Ricardo Garciduenas, 57, a supervisor of the GCP location, Ariel Puyo Alban, 46, a supervisor of the MPC location, and Nicole Garciduenas, 30, a postage meter operator at MPC. Lim, Mungai and Ricardo Garciduenas were arrested last night by investigating agents. Each of these three defendants has appeared before U.S. Magistrate Judge John Froeschner and each ordered released on a $50,000 unsecured bond pending trial of this case. Each is scheduled to appear in court on Thursday, June 24, 2010, for counsel determination. A summons or court order to appear was served yesterday on Herrera, Alban and Nicole Garciduenas directing each to make their appearance in federal court on June 28, 2010.
According to the indictment, MPC, GCP and PMS are third-party mailers and presort companies which operated as mailing agents engaged in the business of preparing, presorting and presenting mail to the USPS for delivery on behalf of other customers. As a presort bureau, GCP was also engaged in the business of pre-sorting and/or automating mail for a larger number of mailers serviced as the bureau’s customers. All six defendants are accused of conspiring to possess and use counterfeit postage meter machines to apply postage in excess of amounts actually paid to the USPS. The indictment alleges that over the four-year period beginning in January 2004 to July 2007, the USPS incurred in excess of $14 million in lost revenue as a result of this alleged scheme.
“The health and success of the Postal Service depends upon strong and aggressive revenue protection,” said Gilligan Jr. “The Postal Inspection Service will continue to identify and pursue dishonest mailers who deliberately avoid proper payment of postage.”
USPS allows mailers to use postage meter machines, leased by the mailer from a USPS approved and authorized provider, to affix postage meter strips/indicia to mail. All metered mail must be pre-paid by the mailer. Per a licensing agreement with the USPS, an approved meter provider maintains customer information to ensure the proper payment of postage and is responsible for setting and resetting meters with postage and maintaining an inventory.
Third-party mailers are mailing agents in business of preparing and presenting mail on behalf of others. A presort bureau is a company that presorts or automates mail for mailers who are their customers. USPS also offers varying discounts for postage on large mailings that have been presorted. If presorting activities lower the required postage to an amount below the amount affixed to the mail, the presort bureau may claim a “Value Added Refund” from the USPS.
The discovery of discrepancies between projected revenue and the actual amount of pre-paid postage to the USPS by MPC, GCP and PMS lead to an investigation by the U.S. Postal Inspection Service.
The defendants face a maximum penalty of 20 years on the conspiracy to commit mail fraud, 20 years on the substantive mail fraud counts and five years on the postage meter fraud counts.
Special Assistant United States Attorney Tammie Y. Moore is prosecuting the case.
An indictment is a formal accusation of criminal conduct, not evidence.
A defendant is presumed innocent unless and until convicted through due process of law
source: US Attorney’s Office
OIG Audit: USPS could save $342 million By Replacing Some Vehicles Instead of Repairing Them
In a recent OIG audit report on USPS delivery vehciles:
The Postal Service has approximately 189,000 delivery vehicles made up of minivans, sport utility vehicles (SUVs), flex fuel, and long-life vehicles (LLVs). The majority of the
Postal Service’s delivery fleet are nearing the end of their 24-year life expectancy. Because of limited capital resources, the Postal Service has delayed its planned purchase of delivery vehicles until fiscal year (FY) 2018. The Postal Service faces the same capital challenges after 2018, as forecasts show continuing shortfalls
The Postal Service has successfully maintained its LLV delivery vehicle fleet in safe, working condition for over 20 years. They attribute this success to a robust preventive maintenance program, as well as a “fix as fails” strategy that we found to be operationally viable and generally cost effective. However, analysis of delivery vehicle costs shows that this strategy would not be cost-effective for fleet vehicles the Postal Service will have to replace soon. These vehicles consist of 19,257 LLVs, with an average annual maintenance cost in excess of $5,600 for FYs 2008 and 2009. Incurring maintenance costs at this rate, the “fix as fails” strategy costs $342 million1 more than it would cost to purchase new vehicles.
This opportunity exists because the strategy as implemented often circumvents the service life and maintenance reinvestment guidelines.2 These guidelines require that before initiating any extensive vehicle repair, Vehicle Maintenance Facilities (VMFs) must assess maintenance reinvestment by providing complete documentation of expected maintenance costs, the condition of all major components, and a cost analysis justifying the decision to repair. This information is to be documented on Postal Service (PS) Forms 4587, “Request to Repair, Replace, or Dispose of Postal Service-Owned Vehicles”, and it is to be submitted for district management approval before the repair is made. We found that this control was circumvented and costly repairs were made because the assessments were not complete and lacked district management approval. In addition, the Handbook PO-701 does not require that cumulative maintenance reinvestments are monitored beyond district levels. Without this control, maintenance intensive vehicles are not apparent to area and headquarters managers.
We recommend the vice president, Engineering:
1. Replace maintenance intensive vehicles beginning in fiscal year 2011.
2. Reemphasize to vehicle maintenance and district managers the reinvestment threshold, the importance of completing PS Forms 4587 to include cumulative costs, and the need to obtain required approvals as detailed in Handbook PO-701.
3. Monitor maintenance intensive delivery vehicles at the area level.
OIG Report: Postal Service’s Progress In Reducing Workhours
This report presents the results of the Postal Service’s progress in reducing workhours based on recommendations in a prior report.1 Our objective was also to assess the
overall efficiency of the processing and distribution network for fiscal year (FY) 2009 (Project Number 10XG017NO000). This is a cooperative effort with the Postal Service
and addresses operational risk. See Appendix A for additional information about this review.
Last year, we reported on efficiency levels and mail volume in processing and distribution centers (P&DCs) and facilities (P&DFs), and recommended the Postal Service reduce almost 23 million workhours by FY 2011. The goal of the previous effort was to report out on Postal Service’s efforts to “raise the bar” on productivity levels for those plants that were the least productive in the network nationwide. We took a similar approach in this report and plan to conduct this type of analysis annually.
Conclusion
The Postal Service made substantial progress by reducing workhours in the network from the previous year. Plants that were the least productive in FY 2008 reduced over
18 million workhours (achieving 82 percent of the recommended workhour savings) and improved productivity by over 6 percent. Moreover, from Quarter 1 (Q1), FY 2009 to Q1,
FY 2010, the Postal Service maintained or improved service. See Appendix B for more information.
However, we found the Postal Service had not yet fully adjusted workhours in response to declining mail volume as a result of poor economic conditions, nor achieved all
possible efficiencies in mail processing operations.
We identified five major areas where the Postal Service could realize workhour savings:
- Overtime Hours
- Mail Handling
- Automated and Mechanized Equipment
- Allied Operations
- Manual Operations
The Postal Service could improve operational efficiency by reducing over 16.2 million workhours by the end of FY 2012. This would allow the Postal Service to achieve at
least median productivity levels in the network and avoid costs of almost $744 million based on workhour savings for 1 year.2 See Appendix C for a detailed explanation of
this cost avoidance.